MIPIM Seminar on "Property and Conflict"
Cannes, 15 March 2001
Keynote speech by Ms. Danuta Hübner
and Executive Secretary of the UN Economic Commission for Europe
" Property and Conflict: the Role of the Business Community"
Ladies and Gentlemen,
Europe is not free from conflicts. And when they take place, they happen around the corner. Since the end of the Cold War, which allowed countries to embark on the process of transition to democracy and market economy, the ECE region has also experienced violence, bloodshed, refugee exodus and internal migration. To date, Europe occupies second place after Asia, in terms of the total number of refugees and internally displaced people within its borders caused by conflicts, reaching in total 7,285,800 people. It is true that the nature of conflict has changed. Conflict occurs less between independent states and more internally within them, though, with a serious transboundary impact on trade, investment, financial links and general stability in the region. The causes are complex and usually multi-dimensional, covering a combination of political, social, ethnic, religious and economic factors. However, it is apparent that the causes of conflict are becoming increasingly economic in the sense of conflict either occurring over the access to resources such as land, employment and credit or in the distribution of these resources between groups.
The response of the international community and the United Nations to these rising tensions in Europe has been robust. Within the UN, conflict prevention has been given high priority and this is leading to new discussion and arrangements for early warning in potentially conflict situations. Secondly, there is a growing consensus that the root causes of conflict are inter alia: poverty; unemployment; growing income disparities both between nations and within societies; a lack of appropriate education; etc. and that to address these challenges there is a need to put more emphasis on economic development as a strategy in peace building. In the United Nations Millennium Declaration, for example, it is argued that economic development is the necessary basis for improving security and ‘peace building’.
We all know that there is no growth, no structural change, no development, no improvement in living standards without the business community. That is why its role can also be critical in peace building. The United Nations Global Compact - a memorandum of understanding with the business community - announced by the United Nations Secretary General in 2000, has invited business to take on a new responsibility in the global economy to broaden its role in promoting the rights of employees, in acknowledging and respecting environmental and human rights. The UN has invited the business community to be partners in development and peace building.
And, indeed, private sector is seeking now new ways to strengthen their businesses through exercising social responsibility. This is a corollary of growing interdependence – the most characteristic feature of the world around us. What particularly matters - because this is the essence of your business - is that the major force which is driving business to engage in development and partnerships is the reduction of business risks and the pursuit of new opportunities. Of course, companies must be informed about social concerns and social agendas. This can happen only through close relations with governments and international development organizations.
When I think what this new role could mean for business in real estate and how the business community can help in peace building, I must admit that the private sector has already become an influential player in many conflict-prone or conflict-ridden countries. It is true for both domestic and multinational companies that they can have an increasingly important role to play in conflict prevention and resolution. The experience shows that in today’s Europe there is also a growing economic rationale for playing this role as there are definitely corporate costs of conflict and benefits of peace.
Many countries in central and eastern Europe and the CIS, experience tensions, frustrations and indeed conflicts that are accentuated by unsatisfactory arrangements surrounding land.
There are a number of aspects to this relationship between real estate and conflict. It is probably sad to admit that after ten years of reform, land is not contributing to economic development and growth in most transition economies. It is an under-utilized and an undervalued asset and the property market remains underdeveloped, with, very often, lack of clarity with regard to ownership. It slows down privatization and reform in countries with economies in transition. This leads to a virtual lack of long-term financing for real estate and mortgage banking is conspicuous by its absence. Little trade in housing and other assets means that little value is generated for the economy. In the rural sector in many countries, there is little demand for either ownership or leaseholds, and again land is of little value, as its market does not exist. While there are signs of new real estate construction in central Europe, this investment is confined to a relatively narrow strata: comprising of luxury hotels; hypermarkets; offices; and storage and warehouse facilities, and expensive housing. These weaknesses in the real estate market lead not only to under-utilised resources; they are barriers to economic restructuring. Labour, for example, is not able to move to new employment opportunities because of the absence of a housing market with reasonable prices. All these factors can raise tensions and heighten insecurity while do not allow business to develop.
We still have in Europe contaminated land. It is a further source of insecurity and a barrier to land market development. There are countries where big territories continue to be contaminated and full of mines because funding for demining is not available. We have countries where competition between ethnic groups over access to arable land has been fuelling tensions. In the recent Balkan war, the destruction of land records of specific groups was a brutal manifestation of ethnic cleansing.
There is a role for the business community in making land a valuable asset contributing to development. Business can help make property a source of stability and development, and not one of conflict. There are a number of key areas that can be identified which will widen the market to those who are socially weak and where there is environmental degradation. This is equally true for Brasil and Ukraine.
We need involvement of private business in social housing which demands a close cooperation with the government.
Through public-private partnerships, the business community can also help to bring contaminated land back to economic use.
To secure property rights seems the key issue. Business community can improve and secure property rights by giving support and assistance to the efforts to develop sound title and registration systems, which will give certainty to property rights in the region, including vulnerable groups, but also foreign investors. This is a difficult process. It is not only about approving legal acts, but, what is more challenging, about their implementation and enforcement.
However, many of the laws and regulations, as well as the institutional capacity within local and national administrations, will have to be created for many of these projects to go forward. There is a severe need for training, and for legal and institutional help, and this will involve resources. The problems highlighted in the study of the Royal Institute of Chartered Surveyors (RICS) and the UN/ECE Real Estate Advisory Group (REAG) are illustrative of the difficulties and challenges.
Why should the business community provide such support to creating property markets? As mentioned earlier, the social and environmental agendas are much to the fore as a result of globalization and the negative effects of the rapid opening up of markets and liberalization. As advocated in the UN Global Compact, companies need to give greater attention to these social and ethical issues in their business operations. At the same time, companies can commercially benefit from the opportunities in central and eastern European real estate, since these markets are ripe for development. It makes economic sense for companies to become involved. These markets are growing while others particularly in the west are maturing. The appeal of central and Eastern Europe to western exporters and businesses stems from the opportunities created through transition and the process of modernizing that is being carried out in an effort to meet EU standards. Their prospects for growth are expected to further rise as economic reforms continue and as they approach EU membership. Additionally, in South East Europe internationally funded reconstruction and developments efforts are already underway. New activities for the energy and transportation infrastructures (including roads, ports, and bridges) and construction create new opportunities. Housing has become high on the agenda and these schemes will inevitably involve public-private partnerships.
We in the ECE want to work with you in this field. The UN/ECE recognizes that the private sector can bring unique assets to the creation of these markets and we can provide a framework for cooperation with Governments. There are already many lessons learnt and UN/ECE is a forum to share them. UN/ECE REAG channels such advice. It has been active in creating a dialogue with ECE member states for improved enforcement of the law, in providing a voice to business to make their concerns knows.
We believe that there is still much to do in raising awareness about land as a factor in economic development. The UN/ECE Financing for Development Conference, held in cooperation with the EBRD and UNCTAD, (December 6-7 2000), raised the issue of land at its meeting and this will be carried forward into the high level Intergovernmental Conference planned for Mexico in 2002. Going beyond awareness raising, the UN/ECE is also mobilizing assistance for the transition economies, especially those facing acute economic problems. What seems crucial in our work is that we must aim not only at creating viable real estate markets, but also at ensuring that such markets are socially and environmentally sustainable. In this regard, we actively support public-private partnerships in social housing, mortgage banking, business parks for SMEs, sustainable tourism etc. in order to broaden the markets in the transition economies and to assist socially weak and vulnerable groups.
The sheer scale of the problem requires new and joint efforts. The business community can do more by taking a lead, by helping with pilot projects, legal and regulatory frameworks, with sharing experience and expertise etc. In the business community, there are excellent people, great ideas, and innovative sources of financing.
The Royal Institute of Chartered Surveyors (RICS), through its research foundation, has already taken the initiative in stimulating a debate on the improvement of land markets in transition economies. Our Real Estate Advisory Group will work on this initiative and will hold policy fora and consultations with member governments to determine the priorities for improving land markets and in determining how these can be developed. We invite you to join us.
It is important to give incentives to private enterprises that make efforts to support these initiatives. In this regard, we suggest that MIPIM might consider a new category of prize to encourage investments in real estate that contribute directly to social and sustainable development such as special housing projects for low income groups or a mortgage banking facility to leverage finance for real estate projects.
There are already lessons learnt in this field. We need more ‘twinning’ of regional development agencies and study tours of some regional authorities in order to learn how local authorities manage and commercialise their real estate assets. In this regard we will post such projects on our UN website which will make it more visible in those member states who need it. As the organization of 55 member states, we can offer an excellent forum for sharing experience and expertise.
We hope in this way that through such measures we can develop a broad partnership between the business community, the UN, and its member Governments, which can help in building viable real estate markets and through this help build peace in the region. As I said yesterday, we can all get a better deal by working together.
Thank you for your attention.